The World Bank Uganda Energy Access Scale-up Project (EASP) (P166685) Project Information Document (PID) For Official Use Only Appraisal Stage | Date Prepared/Updated: 22-Dec-2019 | Report No: PIDA27274 Dec 22, 2019 Page 1 of 17 The World Bank Uganda Energy Access Scale-up Project (EASP) (P166685) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Uganda P166685 Uganda Energy Access Scale-up Project (EASP) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA 30-Mar-2020 15-Jul-2020 Energy & Extractives Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Uganda Rural Electrification Agency (REA), Ministry of Energy and Mineral Development (MEMD), Uganda Energy Credit Capitalization Company (UECCC) Proposed Development Objective(s) For Official Use Only The Project Development Objective is to increase access to energy for households, commercial enterprises, and public institutions. Components PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 482.00 Total Financing 482.00 of which IBRD/IDA 400.00 Financing Gap 0.00 DETAILS-NewFinEnh2 Private Sector Investors/Shareholders Dec 22, 2019 Page 2 of 17 The World Bank Uganda Energy Access Scale-up Project (EASP) (P166685) Equity Amount Debt Amount Government Contribution 400.00 IDA (Credit/Grant) 400.00 Non-Government Contributions 82.00 Private Sector Equity 52.00 Trust Funds 30.00 Total 482.00 0.00 Payment/Security Guarantee Total 0.00 Environmental and Social Risk Classification Substantial Decision The review did authorize the team to appraise and negotiate For Official Use Only Other Decision (as needed) B. Introduction and Context Country Context 1. Uganda is a landlocked country in Eastern Africa, bordered by Kenya, South Sudan, Democratic Republic of Congo, Rwanda, and Tanzania. Extending over an area of 241,550 km2, Uganda is about the size of the United Kingdom. Uganda’s population is growing rapidly at 3.3 percent per year and is expected to grow from 42.7 million in 2018 to over 60 million in 2030. The country has one of the world’s youngest population with almost half of Ugandans under the age of 15 years. 2. Uganda’s real GDP growth rebounded to 7.6 percent in 2017. The remarkable growth recovery was largely driven by a double-digit increase in ICT services and food crops production. Growth in manufacturing also recovered and helped industrial production grow at 3.5 percent. In 2019, real output is expected to grow to 7 percent, assuming improved execution of capital spending, favorable weather conditions, and barring other external shocks. In the short term, weather-related and pest shocks, as well as delays in executing public investments may constrain real GDP growth, which could also be adversely impacted by an unexpected rise in oil prices or sudden drop in foreign demand. Reduced foreign demand, which undermines exports, could result from regional instability due to a renewed flaring up of conflicts Dec 22, 2019 Page 3 of 17 The World Bank Uganda Energy Access Scale-up Project (EASP) (P166685) in South Sudan and the Democratic Republic of Congo (DRC), Uganda’s second and fourth export destinations. A flaring up of these conflicts could also set in motion a renewed influx of refugees, which in turn could disrupt growth in refugee hosting parts of Uganda. 3. Uganda has achieved remarkable results in poverty reduction, but poverty rates remain high in rural areas, particularly in the Northern and Eastern regions. With a per capita income of US$ 643 [Ubos mentions US$425], Uganda remains one of the 20 poorest countries in the world. While over 1992-2013 the proportion of households living in extreme poverty1 declined from 56.4 percent to 19.7 percent, the rate increased to 21.4 percent between 2013-2017. This downward trend is mainly due to drought and pest infestation that affected the agricultural sector during the period 2016-2017. Rural households, which represent about 80 percent of the total population, have mostly fell back into poverty due to their reliance on rainfed agriculture as their main source of income. Thus, while poverty incidence remained at around 9 percent in urban areas, it increased from 22.7 percent to 25.2 percent between 2013 and 2017 in rural areas. Approximately 84 percent of Uganda’s extreme poor reside in the Northern and Eastern regions, where 43 percent of the residents live on less than US$1 a day. Economic growth in these regions has been affected by the civil conflict in South Sudan, an influx of refugees, significant land degradation, and climate change. 4. Uganda has emerged as one of the largest refugee hosting country in Africa and the third-largest in the world with 1.2 million refugees and asylum seekers due to ensuing violence in the Horn of Africa. Half of the refugee population is characterized by women and girls and 61 percent by children under 18 years. Approximately 75 percent of the refugees originate from South Sudan; 17 percent from the For Official Use Only Democratic Republic of Congo; and 3 percent from Burundi, Somalia, and other countries. Most refugees reside in settlements located in 11 districts across the country (out of 134) and alongside local host communities, mainly in Northern Uganda or the West Nile (Adjumani, Arua, Koboko, Moyo, Lamwo and Yumbe). Other refugees reside in Central Uganda or Mid-West (Kiryandongo and Hoima), and Southern Uganda or South-West (Kyegegwa, Kamwenge and Isingiro). These districts are among the poorest areas in the country and are in the early stages of recuperating from a protracted civil conflict. 5. Uganda has a progressive refugee policy framework that grants refugees the right to work, to move freely, and to access Ugandan social and public services. The country has been hosting refugees since 1994 and is recognized globally for having a progressive refugee policy and an adequate protection framework through the Refugee Act 2006 and the 2010 Refugee Regulations. The Refugee Act guarantees refugees’ fundamental rights, including the right to participate in gainful employment, freedom of movement, right to property and the right to access social services. This policy, however, places an additional layer of stress on host communities, which are mostly poor small towns and rural areas that suffer from inadequate infrastructure, limited social capital, low productivity, and environmental degradation due to climatic and soil conditions. The inability to address the development needs of host communities may undermine Uganda’s long-standing open-door refugee policy. 6. Uganda’s long-term development vision is enshrined in the Country’s Vision 2040 that seeks to transform Uganda to a modern and prosperous country. The Government of Uganda (GoU) aims to drive economic development through implementation of a series of six five-year National Development Plans (NDPs). The first NDP (NDP-I) covered the period 2010-2015 and stipulated the country’s medium-term 1 Defined as an income of US$1.90/day in 2011 terms, or US$2.12 in 2018 ones. Dec 22, 2019 Page 4 of 17 The World Bank Uganda Energy Access Scale-up Project (EASP) (P166685) strategic direction, development priorities, and implementation status. The second NDP (NDP-II) covers the period 2015-2020 and aims at propelling the country towards middle income status by 2020 through strengthening the country’s competitiveness for sustainable wealth creation, employment and inclusive growth. The NDP-II aims to achieve an average economic growth rate of 6.3 percent and reduce poverty levels to 14.2 percent. 7. Energy is a vital element of Uganda’s Vision 2040 and the GoU has set a target of 60 percent electricity grid based access by 2027 (33 off-grid) and 80 percent electricity access by 2040. The GoU acknowledges that to shift from a peasantry to an industrialized and largely urban society, the country must be propelled by electricity as a form of modern energy to drive the industry and service sectors. Uganda’s Vision 2040 also recognizes that about 95 percent of Ugandans still use traditional biomass fuels for cooking their meals. Such reliance on biomass fuels together with Uganda’s rapid population growth have exerted considerable pressure on natural resources, especially on forests. Besides, exposure to Household Air Pollution (HAP) from burning of traditional biomass fuels for cooking is estimated to significantly impact the health of over 20 million Ugandans and cause over 13,000 premature deaths every year, with women and children mostly affected. Acknowledging the recent innovations in the renewable energy sector and reduction in cost of solar energy, GoU aspires to align itself towards achieving universal access to modern energy by 2030 - Sustainable Development Goals 7 (SDG-7). Sectoral and Institutional Context 8. The past two decades have witnessed major changes in Uganda’s power sector, which redefined For Official Use Only the role of the GoU as a reformer. In 1999, the GoU passed a comprehensive power sector reform strategy that sought to make the sector commercially viable, reduce dependence on government subsidies, improve access to electricity throughout the country, improve operational efficiency of the sector, strengthen reliability and quality of electricity supply, and attract private investment. The reforms were enshrined in the 1999 Electricity Act, which paved the way for the: (i) establishment of an independent Electricity Regulatory Authority (ERA) to regulate all sector activities ; (ii) unbundling of the vertically-integrated Uganda Electricity Board (UEB) into separate entities, namely the Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL), and Uganda Electricity Distribution Company Limited (UEDCL); and (iii) establishment of the Rural Electrification Board (REB) to oversee the implementation of rural electrification activities with the Rural Electrification Agency (REA) serving as its secretariat and day-to-day operations.